Gold Price Jump Means QE3 is Coming

August 30, 2012 at 09:00


The gold price jumped this week in what has been seen by top resources managers as a market endorsement of the US Federal Reserve announcing a third round of quantitative easing on Friday.

In the week ahead of Fed chairman Ben Bernanke’s Jackson Hole address, the price of gold hit a four-month high when it rose to $1,676 per ounce on Monday.

Although it fell back to $1,666 the following day – still somewhat short of 2011’s high of $1,921 – top resources managers have said the sudden jump in price is reflective of a growing belief quantitative easing is a certainty.

Erich Meier, who runs the ZKB Ressourcen Vision Fonds, said one reason the gold price spiked at the beginning of the week was due to investors safeguarding against a sudden flood of Fed money.

‘What I would say is driving the price change is people are now reading the policy statements correctly.’

‘For example, if you look at what the Federal Reserve said in April, June and the beginning of August, it is very clear they will announce a new round of QE.’

He expects monetary stimulus to be initiated in a number of economies around the world, which will further enhance the opportunities for gold investors.

‘What the Federal Reserve does is, admittedly, only one of the reasons we think that the that the correction came about but now we think that the structural will be back in place unabated and will be for nine to 12 months.’

Meier predicted the current bull run on gold could end with the price ending at between $2,200/0z or $2,500/oz.

Elsewhere, Simon Wainwright, lead manager on the Globersel Pactum Natural Resources fund, said the sudden rise in the gold price was spurred in part by the FOMC minutes released last week, which showed a greater appetite for QE among board members.

However, the commodities specialist said he believes the price rise is also driven by gold overcoming its recent correction.

‘Part of the move was the result of gold hitting the lower end of its long term bullish channel and comments in the media that some long term bullish gold investors had recently increased their holdings,’ said Wainwright.

Although Wainwright expects gold to remain volatile, he said he believes it will continue to trend higher over the coming quarters.